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Is a US Treasury Bond an Old School Investment?



The other day, I was talking to someone at an event, and I mentioned that for your protected investments, the U.S. Treasury Bonds are a good place to look right now. To my surprise, the person responded to me by saying “What, a U.S. Treasury Bond? That’s seems so old school. My mother used to give me U.S. bonds for my birthday many years ago when I was a kid.” For me, I remember those days well. I also used to get 30 years U.S. bonds as a birthday and/or graduation gift as a kid. Although it might seem like old school, with the rapid rise in short-term interest rates that the Federal Reserve did in 2022 and continues to do so far this year as a tool to cool down inflation, short-term U.S. Treasury Bonds have reaped the benefits. Let’s take a look.


First let’s revisit what is a protected investment. As we discussed, these are investments that protect your principal or the initial amount of money that you use to make the investment. These are more conservative investments that are more reliable and do not fluctuate wildly with financial market changes either up or down. These are more predictable investments that you have in place to handle your short-term goals (5 years or less) like saving for a new house, expenses for continuing education, or starting a new business. Since it is intended as a short-term goal, you are not so concerned about large increases in the value. The priority here is more with safety. You want to make sure the money is available when you needed it.


Now let’s look at why U.S. Treasury Bonds are a good option for your protected investments. Before 2022, U.S. Treasury Bonds interest rates were very low. Due to the difficult economic conditions in the U.S. starting in late 2007, and also coupled with the Covid pandemic starting in 2020, the Federal Reserve kept the Fed Funds rates very low as a way to stimulate the U.S. economy and to protect against a severe recession or worst yet a depression. If you remember, the U.S. did experience the Great Recession from December 2007 thru June 2009.As a remedy, the Fed Funds rate was kept at a very low interest rate for a long time. However that all changed in 2022.With the emergence of inflation, the Federal Reserve reversed course and started to aggressively increase the Fed Funds rate. These aggressive Fed Funds rate increases have resulted in a more attractive investment option for short-term U.S. Treasury Bonds. Lets take a look at the following table.


As you can see from Table 1 highlighted in yellow, the interest rate on short-term U.S. Treasury Bonds for 4 months up to 1 year in duration is above 5% [this data is as of March 1, 2023]. This is higher than you would get with the longer-term U.S. Treasury Bonds [5yr ~ 30yr] as shown above. Moreover, the 5% interest rate is practically a risk-free investment. U.S. Treasury Bonds are backed by the full faith and credit of the U.S. government. Additionally, interest is exempt from state and local taxes, but not federal taxes. Keep in mind that you need to hold the U.S. Treasury Bond to maturity to avoid early withdrawal penalties. However if you use this protected investment for achieving your short-term financial goals, the short-term holding period should be ideal for you. And better yet, you can rest easy knowing that your investment is ultra-safe, and it is assured to be the amount needed when the investment matures.


U.S. Treasury Bonds are available to purchase at the TreasuryDirect.gov website. There is a $100 minimum purchase, and the total amount that you invest must be in increments of $100.

I don’t know about you, but if getting a 5% U.S. Treasury Bond ultra-safe investment return for my short-term protected investments is old school, then please sign me up. Some might find that maneuvering the TreasuryDirect.gov website is challenging. No worries, Paycheck to Wealth is here to provide you with assistance. Please contact us to learn more and to get your protected investments setup for short-term financial success.

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